Albany International Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Albany International Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. John Hobbs, Director of Investor Relations. Please go ahead, sir.

Thank you, Tani, and good morning, everyone. Welcome to Albany International's second quarter 2021 conference call. As a reminder for those listening on the call, please refer to our press release issued last night detailing our quarterly financial results. Contained in the text of the release is a notice containing regarding our forward-looking statements and the use of certain non-GAAP financial measures and their associated reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Today, we will make statements that are forward-looking, that contain a number of risks and uncertainties, among which are the potential effects of the COVID-19 pandemic on our operations, the markets we serve, and our financial results. For a full discussion, including a reconciliation of non-GAAP measures we may use in this call to their most comparable GAAP measures, please refer to both our earnings release of July 26th, 2021, as well as our SEC filings, including our 10-K. Now, I'll turn the call over to Bill Higgins, President and Chief Executive Officer who will provide opening remarks. Bill?

Thanks, John. Good morning. Welcome, everyone. Thank you for joining our second quarter earnings call. I'm pleased to report that we delivered another strong quarter with excellent performance in both segments. Our operations continued to do a great job for our customers with best-in-class delivery, quality, and service. I'm really proud of our employees and how they stayed focused on safety, productivity, cost savings, and lean Kaizen process improvements. As a company, we delivered $235 million in revenue in the second quarter, growing revenues both year over year and sequentially, and we achieved near record levels of profitability. Gross margins of 43% and operating margins of 21% are our second highest quarterly margin performance. We achieved GAAP EPS of $0.97 or adjusted EPS of $1.01 and our best free cash flow quarter in a company's history, generating over $50 million in free cash flow in the second quarter. We did face supply chain challenges and materials cost inflation and logistics that our teams were able to manage through and successfully offset some of their impact on the bottom line. And we'll keep an eye on these going forward. We continue to pay down debt and have a healthy balance sheet, which enables investment in future growth. As we've mentioned before, we're increasing our investment in research and technology across the company. In general, we're encouraged by the economic recovery in key markets. coming out of the pandemic slowdown. We're cautiously watching how the Delta variant might affect this recovery, particularly international air travel and the less vaccinated regions of the world. That said, long-term secular trends are favorable, and Albany's market positions, global footprint, and product development take advantage of these trends. In our engineered composite segment, as domestic airline travel recovers, we expect to benefit from our position on narrow-body aircraft with LEAP engines and our partnership with Saffron, As we mentioned last quarter, we're working closely with Saffron to coordinate ramping production as LEAP demand picks up on recovering narrowbody OEM production. Our plans include hiring additional workers and preparing for increased production in our three LEAP Solis as we exit 2021 GROW in the future. We're very excited about Saffron's recent announcement with GE to partner in development of the next generation RISE engine. We view Saffron as an important long-term customer and partner. As we've previously mentioned, we're investing more this year in R&D projects, particularly with new customers and new products, using advanced materials such as our 3D woven composites with a goal to diversify and grow our customer base, broaden our material science capabilities. This ranges from our proprietary 3D woven composites currently used on LEAP engine fan blades and fan cases to automated fiber placement composite wing skins for Lockheed Martin's F-35 Joint Strike Fighter to complex components on the Sikorsky CH-53K helicopter. We continue to develop applications for the Wing of Tomorrow program with Airbus Industries. And along these lines, we're pleased to announce earlier this month our technology collaboration with Spirit Aerosystems to develop advanced 3D woven composite applications for hypersonic vehicles. This collaboration capitalizes on the unique capabilities of both companies to achieve superior hypersonic design solutions and efficient manufacturability using Albany's proprietary 3D woven composite technologies, and it builds on our demonstrated ability to manufacture 3D woven composites at commercial scale. It's an exciting example of the types of new business and advanced technology programs we're investing in today to help secure our future long-term growth. In the machine clothing segment, we're optimistic about recovering global growth, expect to benefit from long-term secular trends, which should underpin the demand for paper products. Our machine clothing business has benefited as a leading supplier in the industry since we're well positioned globally, particularly in the growing end markets for packaging and tissue products. Our product development strategies, operational improvements, and technical service continue to target these higher growth end markets. Our operating teams have been firing on all cylinders, and we expect to continue our strong execution in the second half of the year. Let me say a few words about machine clothing's end markets. Packaging, tissue, corrugated products, pulp, and building products end markets have remained the strongest subsegments, with packaging benefiting from increasing online shopping as retail goes through a fundamental shift worldwide. In tissue, we may be in a transition phase whereby at-home demand settles down and people return to school, restaurants, offices, vacations, et cetera. We've yet to see a pickup, however, in the away-from-home paper markets for our belts, which should eventually improve. Not surprisingly, publication grades continued their decline and only represented 16% of MC revenues in the second quarter. Markets in North America and China are robust, while emerging economies are still grappling with COVID and low vaccination rates, likely requiring more time to rebound. In summary, our machine clothing segment continues to perform well. Our operations are strong, taking advantage of the higher growth sub-segments, and serving customers well around the world as a recognized global leader in the industry. This success is the result of disciplined execution of our long-term strategy. As I mentioned, we have a strong balance sheet and good free cash flow generation, which allows us to continue investing in the technologies and customer programs that expand and broaden our competitive position in both segments. Our first priority for capital allocation is to invest in organic growth programs across both business segments, and then to seek acquisitions that fill our long-term strategy. Our reputation for reliability, service, and technical excellence is well-established in machine clothing, and our brand is growing in aerospace as a reliable supplier and engineer materials partner. We're optimistic about the long-term opportunities in both segments. So with that, I'll turn it over to Stephen for more detail on the financials. Stephen? Thank you, Bill. Good morning to everyone.